The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

March 26, 2010

The fun never stops:

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This is astounding:

“For years, Viacom continuously and secretly uploaded its content to YouTube, even while publicly complaining about its presence there. It hired no fewer than 18 different marketing agencies to upload its content to the site. It deliberately ‘roughed up’ the videos to make them look stolen or leaked. It opened YouTube accounts using phony email addresses. It even sent employees to Kinko’s to upload clips from computers that couldn’t be traced to Viacom. And in an effort to promote its own shows, as a matter of company policy Viacom routinely left up clips from shows that had been uploaded to YouTube by ordinary users. …

“Viacom’s efforts to disguise its promotional use of YouTube worked so well that even its own employees could not keep track of everything it was posting or leaving up on the site. As a result, on countless occasions Viacom demanded the removal of clips that it had uploaded to YouTube, only to return later to sheepishly ask for their reinstatement. In fact, some of the very clips that Viacom is suing us over were actually uploaded by Viacom itself.

“Given Viacom’s own actions, there is no way YouTube could ever have known which Viacom content was and was not authorized to be on the site. But Viacom thinks YouTube should somehow have figured it out. …

“Viacom’s brief misconstrues isolated lines from a handful of e-mails produced in this case to try to show that YouTube was founded with bad intentions, and asks the judge to believe that, even though Viacom tried repeatedly to buy YouTube, YouTube is like Napster or Grokster.”

— The YouTube version of how things went down.

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See also Sony accuses Beyonce of piracy for putting her videos on YouTube

http://www.boingboing.net/2010/03/26/sony-accuses-beyonce.html

In the Sunday NYT, Greg Mankiw posits the following:

• Governments cannot Regulate. Proof? Radical Deregulation failed…

• “I’m not saying Fannie Mae was THE cause of the collapse — but they were a major causal factor.”

• We have no clue why Economists suck — but they just do.

You can read the rest of his intellectual detritus here.

The Sunday NYT catches up with what many others who watch banks have known for a long time: John C. Dugan, the former banking lobbyist and Bush appointee to the job of Comptroller of the Currency, is a tool.

Dugan’s contribution to the collapse of the United States began way back in 1989. Congress had ordered the Treasury to conduct a study on FDIC deposit insurance. Dugan ballooned the project into a 750-page manifesto, titled Modernizing the Financial System: Recommendations for Safer, More Competitive Banks (1991).

The title is misleading, for the paper was a recipe for making banking more leveraged, riskier, and less-capitalized. Congress, being unable tor esist the very dumbest of ideas, did put into effect much of what Dugan proposed into law. They allowed:

• Banks to expand into multiple states without incurring additional regulatory oversight;

• Relatively safe commercial banks to merge with riskier investment banks and insurance companies (Repeal of Glass Steagall);

• The purchase of banks by commercial firms (i.e., General Electric, Sears).

Regarding the Dugan changes to bank regulation, Kansas City Federal Reserve president Thomas Hoenig, in an August 6 2009 speech, made the following observations:

“There were two pieces of legislation that facilitated our migration toward too big to fail… Interstate Banking and Branching Efficiency Act of 1994, which permitted banks to grow across state lines, and the Gramm-Leach-Bliley Act, which eliminated the separation of commercial and investment banking. Since 1990, the largest twenty institutions grew from controlling about 35% of industry assets to controlling 70% of assets today.”

Note that both of these legislations enacted into law changes proposed by Dugan.

George Washington University Law School banking scholar Arthur Wilmarth Jr., professor put it succinctly when he said: “It was the first real recipe for too big to fail.”

Zach Carter was even more blunt: Dugan, Carter declared, is a Master of Disaster.

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Previously:
John Dugan: Architect of “Too Big to Fail” Banks (December 28th, 2009)
http://www.ritholtz.com/blog/2009/12/john-dugan-architect-of-too-big-to-fail-banks/

Sheila Bair vs. John Dugan (June 14th, 2009)
http://www.ritholtz.com/blog/2009/06/sheila-bair-vs-john-dugan/

Office of Thrift Supervision: Asshat Central (December 24th, 2008)
http://www.ritholtz.com/blog/2008/12/ots-asshat-central/

Source:
Does This Bank Watchdog Have a Bite?
ANDREW MARTIN
NYT, March 26, 2010
http://www.nytimes.com/2010/03/28/business/28dugan.html

Interesting discussion by the always worth reading Mark Hulbert about a recent research paper on Short Selling.

While I agree with the paper’s conclusion, it overlooks two major related issues regarding short selling.

Let’s look at a few excerpts first:

“Short-selling became particularly controversial during the recent bear market, when many of its practitioners turned a profit while almost all other investors were suffering. This fueled long-held concerns that short-sellers might be inducing the very price declines from which they profit. A series of regulations have been imposed in the last few years to restrict short-sellers’ behavior.”

This reflects the classic Keynes aphorisim that “It is better to fail conventionally than to succeed unconventionally.” Short selling has always been controversial for that exact reason. The small minority who makes a profit when everyone else is panicking into giant losses are always looked at askance.

On a related note, it also has given cover to dishonest management. I have never forgotten advice given me early in my career by a very successful fund manager: “Anytime management complains about short sellers, run-don’t-walk in the opposite direction. Its prima facie evidence of bad leadership — and a guilty conscious about something untoward at the firm.”

That’s been good, money saving — and in the case of Shorts, money making — advice.

So how do short-sellers find their trades?

“According to the new study, titled “How Are Shorts Informed? Short Sellers, News and Information Processing” — Its authors are Joseph E. Engelberg and Adam V. Reed, both finance professors at the University of North Carolina at Chapel Hill, and Matthew C. Ringgenberg, a Ph.D. student there. The study has been circulating since January as an academic working paper.

Their work suggests that the average short-seller has done well through astute research and analysis, not market manipulation.”

So far, so good.

Where I disagree with the paper’s results is in the statement “for the most part, at least, ‘short-sellers do not uncover and trade on information before it becomes publicly available,’ the researchers wrote.”

We know that is untrue in several high profile short situations. Jim Chanos discovered the fraud at Enron through forensic accounting. David Einhorn figured out that Lehman was playing games with their capital levels and cash ratios. Tyco, World Com, Bear Stearns, AIG, Fannie Mae were all high profile shorts that a small handful of people figured out were not what they claimed to be.

Perhaps the difference is psycholgical in nature. Wall Street research tends to cheerlead ore than it analyzes. Approaching analysis without that natural bias allows the discovery of errors and frauds The Street misses. This might be true even using the same publicly available information . . .

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Sources:
The Wisdom of the Short-Sellers
MARK HULBERT
NYT, March 26, 2010 
http://www.nytimes.com/2010/03/28/business/28stra.html

How are Shorts Informed? Short Sellers, News, and Information Processing
Joseph Engelberg,Adam V. Reed, Matthew Ringgenberg
University of North Carolina at Chapel Hill, February 22, 2010
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1535337

What Does Greece Mean to You?
March 26, 2010
By John Mauldin

What Does Greece Mean to Me, Dad?
Dear Kids,
Ubiquity, Complexity Theory, and Sandpiles
Fingers of Instability
Washington DC, Albuquerque, and Guy Forsythe

“To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown – the first instinct is to eliminate these distressing states. First principle: any explanation is better than none… The cause-creating drive is thus conditioned and excited by the feeling of fear…” Friedrich Nietzsche

“Any explanation is better than none.” And the simpler, it seems in the investment game, the better. “The markets went up because oil went down,” we are told, except when it went up there was another reason for the movement of the markets. We all intuitively know that things are far more complicated than that. But as Nietzsche noted, dealing with the unknown can be disturbing, so we look for the simple explanation.

“Ah,” we tell ourselves, “I know why that happened.” With an explanation firmly in hand, we now feel we know something. And the behavioral psychologists note that this state actually releases chemicals in our brains that make us feel good. We become literally addicted to the simple explanation. The fact that what we “know” (the explanation for the unknowable) is irrelevant or even wrong is not important to the chemical release. And thus we look for reasons.

How does an event like a problem in Greece (or elsewhere) affect you, gentle reader? And I mean, affect you down where the rubber hits your road. Not some formula or theory about the velocity of money or the effect of taxes on GDP. That is the question I was posed this week. “I want to understand why you think this is so important,” said a friend of Tiffani. So that is what I will attempt to answer in this week’s missive, as I write a letter to my kids trying to explain the nearly inexplicable.

Read the rest of this entry »

I did an interview with NPR yesterday on the foreclosure abatement proposals.

(Financial blogger? Really — after all this time, that’s how I am described?)

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click for broadcast

Check out the long film at www.ecofilm.de — It is part of the DVD “Sepp Holzer´s Permaculture” which you can purchase there. A film about the sustainable use of water by Austrian farmer Sepp Holzer. Fishponds on a mountain farm: an unusual sight at these altitudes. On an Austrian mountain, permaculture farmer Sepp Holzer created more than 70 ponds and wetland areas covering about 3 hectares. Filmmakers Malcolm St.Julian Bown and Heidi Snel have published a DVD with 3 films on Sepp Holzer.

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Hat tip boingboing